Uppers and lowers – and we’re not talking teeth…
The provision of a company car is an excellent way to offer practice staff additional benefits and motivation without having to increase their salary.
However, this can be needlessly expensive if organised ineffectually.
Dental practices that offer staff company cars, or who are thinking of doing so, would be wise to review their employee vehicle system sooner rather than later and potentially save the business thousands of pounds in tax.
Important to bear in mind
A practice owner trading as a limited company is considered as an employee when it comes to a company car scheme.
Up until 2009, the tax and national insurance for a company car was based on two lots of calculations; i.e. those relating specifically to the driver and to the practice. From April of that year, the conditions changed and the Inland Revenue became much more interested in the car’s impact on the environment. The rate of capital allowances (CAs), that is, the tax equivalent of depreciation, was to vary depending on the vehicle’s level of CO2 emissions.
Currently, if a company car produces of 160g/km or more CO2, the practice can claim 10% of the vehicle’s value every year. This figure falls to 8% from next April. Cars with emissions below this limit get a much better rate: 20%, dropping to 18% at the start of the next tax year.
Obviously, the answer is to purchase cars with a smaller carbon footprint. After all, within the space of just five years you will have collected tax relief of around 64% of the cost of the car, rather than 34% for a real gas guzzler.
This is where it pays to be aware of your tax breaks. There is actually a new ultra low CO2 emissions limit of 110g/km, which entitles the practice to 100% CAs for the year of purchase. Multiply this by a number of company cars and the savings are staggering.
[dropshadowbox align=”none” effect=”lifted-both” width=”500px” height=”” background_color=”#ffffff” border_width=”1″ border_color=”#dddddd” ]For many people, the idea of such an environmentally friendly vehicle is inextricably linked with the Smart car. An option that, for some, is less than appealing. In reality the choice is far greater, with cars such as the BMW 320d, Honda Civic and Audi A3 all enjoying suitably green credentials.[/dropshadowbox]
In addition to CA benefits, an ecologically sound car requires reduced NI payments from employers and offers further tax breaks for employees, all of which are determined according to car’s CO2 emissions.
To capitalise on the highest level of tax relief for company cars, it’s time to invest in the lowest CO2-producing vehicles. It’s a smart way for a practice to save money and become a more eco-friendly business in one stroke.
First published in Dentistry.co.uk Oct 2011.